Canadian Dollar Forecast: USD/CAD Recovers but Which Trend Prevails?

Canadian Dollar Summary

The Canadian Dollar rallied after the BoC rate cut on Wednesday, but that move was short-lived as support showed in USD/CAD at the 1.3900 level and the back-half of the week saw buyers regain control of the pair. This sets up a short-term inverse head and shoulders pattern in USD/CAD and if we do see the larger theme of USD-strength continue the pair could soon be trading at fresh six-month highs.

USD/CAD was in breakdown mode through Wednesday morning and the Bank of Canada rate decision helped to provide some fuel for sellers. Despite the bank cutting rates yet again, the prospect of a BoC on hold in the near future prodded a degree of CAD-strength, and when meshed up with a USD driven by the expectation for more cuts in December and into next year, there was a clear shift of weakness from the fundamental drive in USD/CAD.

That move continued a sell-off that sparked from a rising wedge formation. There was a minimum of resistance at the 1.4000 handle when buyers were driving the move but once above the psychological level, momentum began to slow at highs even with bulls remaining aggressive on pullbacks. The initial drop below 1.4000 was paused at the 1.3981 level, but sellers went for the break at the Bank of Canada announcement until running into the 1.3905 level that I had highlighted in the webinar on Tuesday.

USD/CAD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/CAD Shorter-Term

I looked at an updated view of the pair on Thursday, and while there remained some bearish items, such as the hold of 1.4000 resistance or the broader rising wedge that price action still remained below, the v-shaped reversal from support was something that demanded respect. And as a continuation of that, buyers have been able to push back above the vaulted psychological level at 1.4000 to find resistance at the familiar 1.4034 level.

This brings on the image of an inverse head and shoulders pattern and given the storyline behind the move, the plot fits, as sellers had an open door to drive a break, were thwarted at a key spot of support, and buyers have since regained control with reference to the same levels that were in-play ahead of the initial breakdown move. Next resistance overhead is the 1.4061 level, the same looked at in the Tuesday webinar and the Thursday article, and beyond that is 1.4080 which is the current six-month high in the pair.

USD/CAD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Products and services available depend on your location and the entity holding your account. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.